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Pension tax relief reform is off the table for now and with the EU referendum pending, chancellor George Osborne doesn’t have a lot of manoeuvre at next week’s Budget.

On 16 March, Osborne will deliver his seventh Budget and according to Tina Riches of accountants Smith & Williamson he has been ‘encouraged by a few people to be boring’.

After two busy Budgets, the Treasury has already signalled that the most contentious topic – reducing pension tax relief for higher earners – will be left alone and tax experts expect this chancellor's statement to be a quieter affair.

Bill Longe, tax specialist at accountants RSM, said: ‘This year…the Budget augurs would appear to have been wrong-footed by the "Brexit" debate and the chancellor’s need to stay in the race to become the next prime minister.’

However, this doesn’t mean there won’t be any announcements and some smaller changes are still expected.

Income tax and national insurance (NI)

The Office of Tax Simplification has published a report criticising the current NI system as ‘not fit for purpose’ following a review on whether it should be merged into income tax to create a 'super tax'. The report concluded that rather than be merged, NI should be brought more in line with income tax.

Considering the OTS report has been published just a week before the Budget, Riches believes there could be an announcement next week that supports its proposals.

‘There has been pressure for the government to merge them but they may look to align them,’ she said. ‘They could change the calculation of NI so that it is done on an annual basis as currently it is done on a monthly basis.’

This would mean that NI is calculated like income tax, which is based on income for the year and if a person has under or over paid they can receive money back or owe more to HMRC. The monthly calculation of NI means those who earn variable wages month to month pay differing levels of NI.

Riches said there would be ‘winners and losers’ if the taxation was aligned but ‘in a way it would be better to know what you are paying’.

Income tax rates

In the last Budget the chancellor said he was keen to increase the threshold at which workers start paying 40% to £50,000. It currently kicks in at £42,385 and next month will rise to £43,000 but as a gift to the middle-classes, Osborne may commit to raising it more quickly, said Gary Heynes, also of RSM.

‘Quite how far the chancellor can afford to raise the threshold now that his plans to reform pensions tax relief have hit the buffers remains to be seen,’ said Heynes. ‘However, demonstrating progress on delivering his manifesto commitments should play well with the party faithful at a time when he is looking to boost his leadership credentials.

‘If the rise in the 40p threshold were to take effect from April this year, it would also provide a welcome bonus to middle income earners who he is hoping to woo in the lead up to the EU referendum.’

Riches said the Budget will also provide a chance to clear up two anomalies within income tax. As the personal allowance – the part of your income on which you pay no tax – tapers away by £1 for every £2 of income over £100,000, an effective tax rate of 60% is paid on income between £100,000 and £121,000.

Riches said it would be a chance for the government to ‘iron out’ a ‘quirk’ in the tax system that ‘would not cost them a lot of money’.

Pensions

While tax relief changes have been ruled out of the Budget, that doesn’t mean that pensions will escape tinkering altogether next week.

There have been rumours that Osborne will make changes to the tax-free lump sum – the 25% of your pension you can take tax-free. The rumours have ranged from scrapping it entirely to capping it to a certain sum.

‘His targets may include reducing the amounts that can be paid as tax-free lump sums, which according to recent studies costs the exchequer a whopping £6 billion [a year],’ said Longe.

‘Another target may be the use of salary sacrifice schemes which is difficult to justify. Other than sacrificing pay for pensions, which reduced the NI contributions bill for both employers and employees, there are other easy targets including free parking for employees.’

Riches said she ‘would not be surprised’ if the government brought in measures to tackle salary sacrifice but said the problem is that stopping salary sacrifice would hit the private sector hardest, as it is not used in the public sector.

‘In the public sector you do not have defined [pension] contributions going in [to a scheme via the employer], only the promise that you will get a pension relative to your final salary,’ she said.

How about reducing the 40% tax threshold for anyone over 65 IF they are higher rate taxpayers. This could claw back some, but perhaps not all of the taxpayer cost of free Bus Passes, Winter Fuel Allowances and free Prescription charges.

After all pensioners earning more than £43,000 each, and I am one of them, do not need ALL of these benefits, and the effective means testing could be done inexpensively if the calculation was to be done a year in arrears when their tax affairs are examined by HMRC in the normal course of events.

Not popular I am sure, but it would seem to be fairer. Jeremy Corbyn could hardly speak out against this, and Labour will probably do this anyway if they get back in, but they would be sure to make things over complicated.

Does anyone worry that The chancellor may introduce tax on the currently tax free lump sum for old money. Just over a year to go and was relying on that tax free lump sum of £110,000. Surely it would be unethical to take this away without notice for previously accrued expectations? Anyone have a view or insight into this. It's rather worrying!

You are quite justified in assuming that I would enjoy paying more tax, but I can assure you that I do not relish the idea at all.

My view is that more taxes just have to be raised, more cuts to services are inevitable, so tough decisions have to be taken by GO. He is so keen to avoid a Brexit and ensure he succeeds DC, so where and who from can he squeeze a little? He cannot raise basic rate tax or reduce personal allowances, or play around with tax relief on pension contributions any more than he has thus far, so my suggestions stand, and even limiting tax free payments from pensions to say £50,000 might have to be announced.

If we end up having to continue paying billions a year to the EU, and billions more in Foreign Aid to despots who need a new presidential aircraft then something has to be dumped on the reasonably comfortably off.

The Conservative party at the moment is incompetent. They want you to vote for them but sit on the fence as far as Europe is concerned, whilst allowing David Cameron to go around saying he has renegotiated a good deal with Europe. Does nobody in the Conservative party know the story about the Emperors new clothes, because that is what David Cameron's deal is like.

Pity Riches can not get her facts right. I worked in the public sector for a local authority, and had 5% of my salary deducted as superannuation contributions. If she fails to get a simple fact like this right why should we believe anything else she says. She should learn not to believe all she reads in the papers.

‘His targets may include reducing the amounts that can be paid as tax-free lump sums, which according to recent studies costs the exchequer a whopping £6 billion [a year],’ said Longe.

No it is taxpayers money and it would be appreciated if this was respected a little more. I am also sure that if sound econmics were appreciated then the benefit culture that seems to prevale in our society would recede.

I have not seen any reaction or comment to the possibility that the Chancellor may merger income tax with NI i.e.20% + 12.8% =32.8% tax on income, which would impact on pensioners, who currently do not pay NI; or am I missing something?

Graham Williams maybe you should read the paragraph concerned again. Ms Riches referred to defined contribution, where you pay a percentage of your salary in and hope you get something worth while out. Your scheme is a defined benefit scheme where the pension you receive is linked to your salary. It is a contributory defined benefit scheme not a non-contributory defined benefit scheme.

I suggest that you do some research into the likely actual cost of your pension. I think you will find that if you had to save for an equivalent pension in a defined contribution scheme you would be putting in an awful lot more than 5%. Depending on your age and, therefore, the time you have for the pension to grow it could be in excess of 30%.

Shedboy - It'd be political suicide to impose an additional 12.8% tax on pensioners. It'd be perfectly possible to make an exception for pensioners in the Finance Act.

I still think that if the Chancellor is leaving pension tax relief alone he will be making a big increase in the annual ISA limit. That way he leaves it to personal choice whether the worker puts his spare cash in an ISA or in a pension, which the worker can't touch till he's 55. And only the most far-sighted people will go for a pension in that case . . . .

Leave the fuel tax as it is, it's been a long time since we've had any motoring benefit at all, at least this temporary drop in price helps those of us who haven't got a lot of money due to having been robbed by crooked IFA Martin Rigney of Topps Rogers fame. Stop paying foreign aid - to India for example, a country which can afford a space programme but chooses not to build drains.. Pakistan, so they can train terrorists to blow us up...oh and of course, forgot to mention politicians self serving expenses...

Forget all the crap about trade being hit and subsidies falling, get us out of Europe and start putting Blighty first for once.

Sorry, Hampshire Cynic, but I really don't get the connection between Pensioners' Bus Passes, Winter Fuel Payments etc. and a Brexit,

Oh and I almost forgot the £10 Christmas Bonus, that must be a big cost to the Exchequer as well!

I make a very occasional free bus trip into the City for shopping and, from what I see on these occasions, if it were not for the Pensioners' Passes the buses would just have to be subsidized in some other way, for they could never exist on the income from fares alone.

I also receive a total of £210 in Winter Fuel Payments and Christmas Bonus.

As for prescription charges, well they don't apply in Scotland, Wales or Northern Ireland anyway but, even if they did, a 12 months Pre-Payment certificate in England only costs £104

I worked all my life and paid higher rate tax so I have paid plenty and still do. None of the above seem an excessive or unreasonable reward for this. and certainly not justification for imposing a higher rate of tax on over 65s only.

Does anyone worry that The chancellor may introduce tax on the currently tax free lump sum for old money. Just over a year to go before we take a substantial pension and was relying on that tax free lump sum of £110,000. Surely it would be unethical to take this away without notice for previously accrued expectations? Anyone have a view or insight into this. It's rather worrying!

I too think it would be wrong to start taxing the tax-free lump sum(s) allowed when moving pension funds to Drawdown. Great capital was made of this feature when the pension reforms were announced and then implemented last year. So, to do it now would rather destroy the Chancellor's credibility. That doesn't mean it won't be done at some time in the future.

As has been said many times here, pension planning is a long game (20-40 years). It's about time governments recognised that and stopped messing with them and also using them as some un-tapped revenue source. They will not incentivise people to save into pensions if they keep reducing the benefit of doing so.

I have other views too:

- Tax relief is 'deferred tax' and not a gift from any government and so it shouldn't be messed with.

- The Lifetime Allowance (LTA) is an anachronism and is a tax on the growth of a pension. It should be removed now that pension contributions are capped. Note too that if tax-free lumps sums were capped, then more people would likely by taxed on their LTA. Remember, the LTA is tested at each benefit crystallisation event and ALSO at age 75.

- The annual pension contribution limit should be kepy high (£50k?) as many people pay more pension contributions in later life after children have left.

- All UK pensioners should get annual increases, not just those resident in the UK, EU and selected other countries (but not Australia, NZ, Canada and most Commonwealth countries).

- Current plans to raise probate fees by several hundred percent is wrong, but that's rather off-topic.

Very good thanks! Just be happier when I know the Gov aren't going to still us again with another change. Affected by rising SPA, GMP indexation increase withdrawal after April, loss of inherited SERPS, raiding the tax free lump sum would just about be the last straw.

My comments arise from my understanding and views on defined contribution pensions - I have never had the benefit of a defined benefit scheme. However, I think that the principles should be the same for both whether it relates to tax-free sum, tax relief, LTA etc. I cannot see that a chancellor could justify treating them separately

After all, a pension (of whichever flavour) is a savings/investment scheme intended to fund retirement. Therefore benefit and tax treatment should be identical.

P.S. I am not a financial/investment/tax adviser, just a layman trying to understand the pension landscape.

There is no doubt that at some stage he is going to attack the 25% lump sum. It is likely that he will cap the actual amount you can take or perhaps start reducing the 25% figure. My advice is take your pension early ( over 55) and preserve your 25% , that's what I have done. You don't need to use the pension itself if you don't want to. I have started a new pension.

You ask what Brexit has to do with my 'helpful' suggestions as to how George Osborne can raise some money, a lot of money as it happens, to reduce our deficit. A reasonable question on the face of it, but.....!

If we as a country were not saddled with the NET contribution to the EU of some £9.5 billion a year, (some would say that the actual cost is much higher than this), and did not have to pour an excessive amount into Scotland, and we used the Foreign Aid budget rather more carefully, then social benefits would not have to be reviewed as severely.

As it is we are now going to give an extra £500 million a year to Turkey to cover some of their migration costs (they are not too effective now are they), and most probably have to let millions of Turks into this country and our generous welfare facilities. We can all see that full EU membership for Turkey will be the next decision on the agenda. If EU enlargement from the East has been a challenge just imagine what another largely Islamist 70 million will do to this small island! We just need out, and the Danes and others would most probably follow. All this assumes that the Euro does not implode and bring about a total collapse of the whole idea of a State called Europe. Sex assaults in Germany & Sweden do not help things do they?

We cannnot even throw out criminals because of the HRA and European courts( which don' even have properly qualified judges at the helm). It is all busted in more ways than one. The EU cannot even get their accounts audited, a situation which has trundled on for 21 years, so how much of our EU contributions have been wasted in all that time?

In the meantime, and until Cameron and Osborne get given the grand order of the boot, we need to save some state expenditure NOW, hence my modest suggestion that Higher Rate taxpayers (of which I am one), could still get by without bus passes, winter fuel payments, free prescriptions (unless they have a particularly chronic health condition), and even the Christmas bonus which most probably costs more than £10 to pay in terms of administration. We have Dave's promise not to withdraw these freebies from pensioners, so a slightly lower Higher Rate tax threshold for the over 65s would be easy to implement. After all, politicians of all persuasions are fairly slippery in their actions, and well off pensioners are not suddenly going to vote for thenice Mr Corbyn and co. However, the poor and disabled might be persuaded to do just that.

I should stress that I am not a member of any political party, not even UKIP. I was once a Conservative, but now only vote for them as the lesser of a number of evils.

Hampshire C, you make some good points. I am sure there are many others, and I would add that there are probably billions that can be saved by properl polocong projects, getting rod of a huge amount of dead wood in the Quangos, civil service, LAs and Health Service, not by cutting services but stoppingthe issue of temporary NI numbers for EU and others not resident in this country, which they take home or o another country and get the treatment the want, at the expense of the NHS (chatged back to the NHS) (even though not resident here and there are no NICE guidlines abroad, so that locals are denied treatment for locals because they are not sure) The guesstimate is that about £200 mil PA goes abroad this way. I guess it is probably double that and then there is the health tourism from Africa and other continents. Another £100 mil.

Cut down on that (and that must mean MPs and lords and civil service and other public purse spongers expenses). Another £75 mil? More than a few prosecutions (even for retired offenders wouldn't go amiss, and make many think a number of times before fiddling).

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